June 20, 2016

Donnelly, Warren Encourage Fed, FDIC to Consider All Statutory Tools if Banks' Living Wills Are Found Not Credible

Washington, DC- United States Senators Joe Donnelly (D-Ind.) and Elizabeth Warren (D-Mass.) sent a letter today to the Federal Reserve Bank (Fed) and Federal Deposit Insurance Corporation (FDIC) to encourage the agencies to consider, and be willing to use, all statutory tools at their disposal if banks' resolution plans, also known as living wills, are found not credible.

Earlier this year, the Fed and FDIC jointly determined that five large financial institutions had submitted living wills that were not credible. The agencies required those five institutions to address the deficiencies in the earlier plans and submit revised plans by October 1 of this year. The Senators expressed concern that, eight years after the financial crisis, and "after a multi-year review process, the living wills of five large banks reveal that the banks are still too vulnerable to weather a major economic storm without threatening the economy."

In the letter, Senators Donnelly and Warren said, "As we learned from the recent financial crisis, the failure of a handful of financial institutions can threaten the safety and soundness of the global economy and the financial security of working-class families. It is essential that you keep those lessons in mind - and be willing to use the statutory tools Congress has provided - as you continue reviewing the resolution plans, or living wills, of systemically important financial institutions. As Senators Donnelly and Warren noted, "Section 165 of Dodd-Frank provides the Federal Reserve and the FDIC the authority to impose more stringent prudential requirements on, or even ultimately restructure, large financial institutions unable to craft credible resolution plans on their own."

The Senators closed the letter urging the agencies "to utilize their existing authority and remain vigilant to safeguard the financial system from ever again endangering working-class families and the broader economy."

The text of the letter is below:

June 20, 2016

The Honorable Janet Yellen
Chair
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue N.W.
Washington, D.C. 20551

The Honorable Martin J. Gruenberg
Chairman
Federal Deposit Insurance Corporation (FDIC)
550 17th Street, N.W.
Washington, D.C. 20429

Dear Chair Yellen and Chairman Gruenberg,

As we learned from the recent financial crisis, the failure of a handful of financial institutions can threaten the safety and soundness of the global economy and the financial security of working-class families. It is essential that you keep those lessons in mind - and be willing to use the statutory tools Congress has provided - as you continue reviewing the resolution plans, or living wills, of systemically important financial institutions.  

The financial system is unquestionably safer today because of important provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act. In the law, Congress provided clear guidance to regulators and strengthened the tools at their disposal to ensure adequate oversight. Central to that effort are requirements that systemically important financial institutions demonstrate their plans for a rapid and orderly resolution through bankruptcy in the event of material financial duress or failure.  

Earlier this year, the Federal Reserve and the FDIC rejected five such living wills. Those five financial institutions will have until October 1st of this year to rewrite and resubmit their plans. We appreciate the effort and progress made by the banks thus far, but it is highly concerning that after a multi-year review process, the living wills of five large banks reveal that the banks are still too vulnerable to weather a major economic storm without threatening the economy.

As you know, Section 165 of Dodd-Frank provides the Federal Reserve and the FDIC the authority to impose more stringent prudential requirements on, or even ultimately restructure, large financial institutions unable to craft credible resolution plans on their own.  

It is up to the regulators to utilize their existing authority and remain vigilant to safeguard the financial system from ever again endangering working-class families and the broader economy. We encourage you to consider all your statutory tools in Section 165 should you determine that the resubmitted living wills of the largest financial institutions are not credible.

Sincerely,

Joe Donnelly
United States Senator

Elizabeth Warren
United States Senator

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